Friday, May 08, 2009

In time of economic, social and environmental disintegration the openness for exploring new ideas has never been more fertile. One of these, the basic income guarantee (BIG), has yet to make an impact on public stage and this article is an attempt to bring it and its benefits to a greater light. My own experience with BIG was as an undergraduate, where it formed the basis of my thesis in Economics. My studies convinced me of the power, simplicity and benefits that implementation of a BIG would bring to the UK and the global economy and from the basis of a more equitable and just society.

What is a BIG?

A Basic Income Guarantee, known variously as Universal Basic Income, Negative Income Tax and Citizen’s Basic Income, is a monthly grant given to every person in society regardless of age, income, employment status or nationality. It would replace, fully or partially, current benefit systems and paid at the household or individual level. Its aim is to provide a certain level of income below which a civilised does not tolerate. As such it forms the basis of economic and social freedom that current systems of redistribution lack. Obviously, a BIG requires a greater contribution from the richer sections of society.

The current UK system

The current benefits system in the UK is based on tax credits, transfers which depend on the beneficiaries current state of income and/or social and economic arrangements, such as single parents and those out of work. Its flaw lies in its division of the deserving and the non-deserving poor, the administrative tangle this produces and the way repayments are made.Dividing between deserving and non-deserving poor requires definitions most of which are hangovers from the 19th century. Workers and single mothers are favoured while those out of work or non-nationals are believed to be less worthy of society’s support. In practice, these definitions mean that many people fall through the gaps and rather than being a tool of supportive integration, the benefit system fuels stigma of those who receive benefits and marginalisation of those who don’t.

In part stemming from these divisions, the administration of tax credits is cumbersome. Over and underpayments are frequent and the system of means testing adds confusion, complication and exclusion.

Finally, beneficiaries are required to pay back tax credits as their income rises on a sliding scale, so for a one pound increase in income, 35p of credit is withdrawn. In theory this sounds pragmatic but in practice households receiving a number of tax credits, for example working tax credit and child tax credit, often have a repayment rate of over £1 per extra £1 earned. This punitive so-called Effective Marginal Tax Rate contributes to just the sort of poverty traps tax credits are supposed to eliminate.

Justification for BIG

Proponents of the BIG come from a broad church. Free marketeers – most notably Milton Friedman, prominent Keynesians and the UK Green Party support it as a way to compensate and create a income floor below which none should fall.The current free market paradigm contains a paternalist instinct that economic expansion requires people to be looked after but chiefly holds to the idea that we earn the incomes we deserve. An alternative view, and one that justifies BIG, is that the market system inadequately represents the interdependent way in which income is generated. Structural deficiencies define that bankers are the most deserving in society, whilst nurses, teachers and creative class less so. A BIG is an acknowledgement that whatever one’s role in society your contribution is equally valued.

BIG benefits

The most striking feature of the BIG is its simplicity. Society designs an income floor below which no one should fall and pays this to each individual or household regardless of social and economic status. Economic poverty would cease to exist and the dependency on the material as a definition of well-being would vanish. BIG’s simplicity would also solve the current administrative miasma and give economic recognition to each and every member of the population.

The economic freedom generated by a BIG would allow society to focus more on its social problems and give people space to pursue activities that are less economically motivated. As a result, communities and social projects would be given a solid basis to thrive as people defocused from purely economic activity.

Employment impact

One of the criticisms most quickly levelled at a BIG is that people it would be a boon for the unemployed and lazy. There’s no doubt that having a bit of extra income would decrease people’s desire to work but as described above, this is in itself desirable. What a BIG will not remove is the human need to create, have purpose and also find social inclusion in work. The criticism stems from the outdated and mistaken idea that the poor are lazy rather than the victims of an unjust socio-economic apparatus. One of BIG’s benefits is that the socio-economic stigma created by the current benefits system will be removed, allowing the poor to make a greater contribution to society.

Practical attempts

One of the most forward leaning attempts at implementing a BIG comes from the Nixon administration in the 1970s, who conducted a series of experiments on a negative income tax, ironically involving Donald Rumsfeld. Apart from the economic benefits the NIT gave experiments participants was the change in behaviour. A permanent rise in income meant that rather than splurge on colour TVs, participants spent their extra money on welfare improving items such as better accommodation and labour saving devices. Around the edges of the experiment were also noted substantial improvements in school test scores and better nutrition. The holistic improvements of NIT were therefore verified.

The NIT was at one point given serious consideration by Nixon but academics are still at a loss to explain its lack of progress beyond experimentation and the speed at which it dropped from the agenda. We can only guess that the tax required to make NIT/BIG worthwhile was found at the time to be appalling.

The state of Alaska redistributes its oil wealth as a $1,500 grant to each household each year. While an ideal BIG would be higher, the grant is said to contribute to Alaska’s status as the most egalitarian state in the US and gives households a much needed boost to spend on winter coats and heating, ensuring a basic standard of living for everyone to cope with the harsh winter.

Affordable

A UK BIG would realistically be about £50 per week or £2500 per year for each individual. Calculations by some highly regarded economists in 2002 found this level could be funded by a flat tax of 33%, which would also provide for all other commitments in the then current budget. The calculations showed that a BIG is not only affordable but could lead to a better deal for richer members of society. A progressive taxation system is not only more desirable from an equity point of view but could also increase the BIG’s affordability.

What would need to change for the UK to accept a BIG? Firstly, outdated stigma attached to redistribution policy that brands the poor as undeserving or worthy of only our small change and secondly, an adjustment of how we view activities in purely economic terms.A BIG would have a direct social and economic impact in the UK and, by removing our dependency on the material justification, could well unleash creative and community-based activity would no doubt produce its own favourable economic consequences, albeit nested in a more inclusive, supportive and just environment than is currently the case.